VERY URGENT

Question two a) Explain why proper working capital management is important for the financial success of a company. [5marks) b) The management of Shujaa Packers Ltd. is planning to carry out two activities at the same time to: Determine the best credit policy for its customers Find out the optimal level of ordering orange juice from its suppliers. The following data have been collected to assist in making the decisions: 1. Annual requirements of orange juice are 2,100,000 litres 2. The carrying cost of the juice is Sh.8 per litre per year ordring cost 3. The cost of placing an order is Sh.1,400. 4. The required rate of return for this type of investment is 18% after tax. 5. Debtors currently are running at Sh.60 million and have an average collection period of 40 days. 6. Sales are expected to increase by 20% if the credit terms are relaxed and to result in an average collection period of 60 days. 7. 60% of sales are on credit. 8. The gross margin on sales is 30% and is to be maintained in future. ordning Cart Determine: i. The economic order quantity. i. The ordering costs iii. The holding costs iv. If the company should switch to the new credit policy. [3marks) [3 marks] [3marks) [6marks) [Total 20marks)